Slack CEO Butterfield explains why it didn’t go public with an IPO

Slack CEO Stewart Butterfield poses for photos outside the New York Stock Exchange before his company’s IPO, Thursday, June 20, 2019.

Richard Drew | AP

The CEO of messaging firm Slack said that the company didn’t want to go public with a traditional IPO so that it could bypass the closed-door process of raising capital from private investors and hasten its access to the broader public capital market.

“I think there’s a lot of investors who are used to a model where they get a small allocation, they wanted a big one. In a direct listing, at least they have an opportunity,” Stewart Butterfield said in an interview with CNBC’s Andrew Ross Sorkin on Thursday.

“And I think you saw that with Spotify: Some early institutional investors taking huge positions on day one,” he added. “The savings [from direct listing] aren’t that great, to be honest. And that’s certainly not the motivator.”

Wall Street’s latest high-profile addition, Slack is a workplace-oriented app designed to ease communication through chat channels, akin to large group messaging. The company hopes to appeal to a variety of companies and usurp email’s longstanding reign as the primary method of intra-office chatter.

Unlike other newsy debuts this year that followed the usual IPO playbook like Beyond Meat and Uber, Slack chose to launch through a process known as direct listing. In traditional IPO, new shares are created, underwritten and sold to the public, diluting existing stakeholders. In a direct listing, no new shares are created and are sold on the public market without underwriting and without a lockup period.

Spotify went public on April 3 using a direct listing, at the time representing one of the most prominent companies to so. Corporate law firm Latham & Watkins, which represented the music streaming platform in its direct listing, wrote that Spotify wanted to list with as much transparency, access and price discovery as possible, a sentiment echoed by Slack’s chief.

“One of the hopes for a company like us is that there’s not too much volatility. And we are hoping that this model, where there’s many sellers and many buyers – supply and demand – we reach a market-clearing price a lot earlier,” Butterfield said.

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